Potential Economic Challenges Looming in 2025, Says Moody’s Chief Economist

The U.S. economy is showing remarkable resilience as President-elect Donald Trump prepares to take office, according to Mark Zandi, Chief Economist at Moody’s Analytics. Despite the current positive economic indicators, Zandi cautioned that there are significant risks that could challenge the economy in the coming year.

At a recent conference hosted by the Consumer Federation of America, Zandi highlighted some of the key areas where the economy is performing well. The U.S. has seen robust growth with GDP expanding at around 3%, strong productivity, and healthy business formation. The stock market has also remained positive, bolstering confidence.

“Right now, the economy is in great shape,” Zandi remarked. “But even the strongest economies face challenges, and 2025 could present a few hurdles.”

Key Areas of Concern: Immigration and Tariffs

Zandi pointed out two specific areas of concern that could affect the economic trajectory under Trump’s administration: immigration policy and trade tariffs. These issues, he said, are likely to be addressed quickly and could lead to significant shifts in the U.S. economy.

"President Trump has made it clear that he intends to follow through with his campaign promises, including aggressive moves on immigration and trade," Zandi explained. "These decisions could have long-term consequences, both positive and negative."

Zandi noted that immigration has played a crucial role in the U.S. economy's strength, particularly in terms of the labor market. Many recent immigrants have entered sectors of the economy that were facing labor shortages, contributing to a healthier overall workforce.

Research from Goldman Sachs corroborates Zandi’s view, stating that immigrants have helped fill crucial gaps in industries that were experiencing tight labor conditions in 2022. As such, any changes to immigration policy could have wide-reaching implications on the U.S. job market and productivity.

The Impact of Tariffs on Consumers and Businesses

Another potential storm Zandi identified involves Trump’s tariff proposals. While tariffs are often framed as a way to protect domestic industries, they come with significant risks to both businesses and consumers.

“Tariffs introduce a lot of uncertainty,” Zandi said. "They disrupt global supply chains and create additional costs for businesses, which could trickle down to consumers in the form of higher prices."

Trump has suggested implementing broad tariffs on imports, which would raise the cost of a wide range of consumer goods. The National Retail Federation (NRF) recently analyzed the potential impact of these tariffs, estimating that it could cause substantial price hikes in categories like clothing, household goods, and toys. For instance, they project that the cost of clothing could rise by as much as 20%, potentially increasing the price of a $80 pair of jeans to $96.

The broader impact of these price increases could strain household budgets, particularly among low-income families. Data from the Bureau of Labor Statistics shows that lower-income households already spend a disproportionately large percentage of their after-tax income on apparel, making them more vulnerable to price hikes.

In addition to squeezing consumer budgets, Zandi also warned that tariffs could reduce consumer spending power overall, further dampening economic growth. For businesses, the uncertainty caused by tariffs could lead to delays in investment, job cuts, and slower economic expansion.

The Ripple Effects of Trade Uncertainty

Beyond tariffs, Zandi stressed the broader uncertainty surrounding U.S. trade policies. As businesses grapple with potential new trade barriers, they may hold off on major investments or reduce hiring. This could have cascading effects on economic growth, particularly in sectors that rely heavily on international trade.

“Uncertainty about trade policies can be just as damaging as the tariffs themselves,” Zandi added. “Businesses thrive on predictability, and right now, the shifting trade landscape is anything but predictable.”

Navigating the Economic Storms

While the economy is currently in a relatively strong position, with solid growth in GDP, productivity, and business activity, Zandi’s analysis suggests that 2025 could bring some significant challenges. The potential consequences of new immigration policies, tariffs, and trade uncertainty could disrupt the current economic trajectory.

As President-elect Trump prepares to implement his policy agenda, businesses, consumers, and policymakers will need to brace for potential storms that could impact everything from job growth to consumer spending. For now, Zandi remains optimistic about the economy’s resilience, but he urges caution, particularly in light of the uncertain policies on the horizon.

“The U.S. economy is in a good place now, but that doesn’t mean we won’t face headwinds,” Zandi concluded. “It’s going to take careful navigation to ensure that we stay on the path to growth.”